U.S. Sues Missouri Lawyer to Halt Alleged Tax-Fraud Schemes

WASHINGTON – The United States has asked a federal court to permanently bar Philip A. Kaiser, a St. Louis tax lawyer, from promoting several allegedly fraudulent tax schemes, the Justice Department announced today. According to the civil injunction suit, filed in the U.S. District Court in St. Louis, Kaiser has sold schemes that help wealthy clients:

Use sham transactions to claim massive charitable contribution deductions, with little or no money actually going to any legitimate charity;

Evade income tax on business earnings by using sham transactions with sham corporations to reduce customers’ reported federal income tax liabilities;

Illegally circumvent the contribution limits for Roth IRAs; and

Evade federal income tax on gains from stock sales by using the Derivium tax scheme to disguise the sales as "loans."

In an example detailed in the government complaint, two Chesterfield, Mo., dentists allegedly used Kaiser’s charitable-contribution scheme to claim more than $750,000 in charitable tax deductions for purported contributions for the benefit of two St. Louis-area private schools when in fact, according to the complaint, the schools have received less than $2,000.

Under another scheme, referred to as the PIRAC scheme, Kaiser allegedly helps customers with existing businesses evade Roth IRA contribution limits, and later withdraw funds from their Roth IRAs without paying income tax. An example in the complaint alleges that a Clayton, Mo., couple who owned an executive search firm participated in Kaiser’s PIRAC scheme. The IRS allegedly audited the couple’s tax returns, and the couple agreed to pay additional tax, interest and penalties of $74,123, relating to their participation in Kaiser’s scheme. The complaint says that the couple has sued Kaiser alleging legal malpractice. Trial of that case in the Circuit Court for St. Louis County, Mo., is scheduled for May 3, 2010.

The complaint alleges that the IRS conducted an investigation of 75 self-directed Roth IRA accounts established under Kaiser’s direction. The investigation revealed that, for 56 of those accounts, approximately $145,000 in customers’ initial Roth IRA contributions grew to over $9,979,921. The other 19 customers were able to turn their initial contributions into $35.5 million.

The Internal Revenue Service’s recently announced list of the "Dirty Dozen" tax scams for 2010 includes abusive Roth IRA schemes.

Since 2001, the Justice Department’s Tax Division has obtained more than 460 injunctions to stop the promotion of tax fraud schemes and the preparation of fraudulent returns. Information about these cases is available on the Justice Department Web Site.